Last Friday’s report of the big jump in consumer sentiment to its highest level since mid-2021 reflects the positive reaction to the continuing decline in inflation and growth in stock prices. The S&P and Dow Jones both reached new record highs last week.
- The jump in the University of Michigan headline index by more than 28% to 78.8, brought it to its highest level since mid-2021. There were big improvements in both the current conditions and expectations indices, which were “supported by confidence that inflation has turned a corner”.
- The most visible drivers of consumer sentiment typically are gasoline prices – which have fallen regularly since October – and stock market performance, which has been generally positive since October before reaching new highs this past week.
- The direct relationship between consumer confidence and consumer spending is not always so clear, but we see consumer spending and retail sales – better than expected this past week — still strong as excess household savings are mostly spent, and consumer debt and delinquencies are increasing.
- The S&P 500 closed 1.2% higher on Friday with semiconductors leading the gains, up 3.9% on Friday and 7.9% for the week.
- With positive contributions from semiconductors and homebuilders, Keel Point Satellite Equity gained 1.8% over the past month compared to the all-country-world-index (ACWI) being up 0.5%.
- 2024 is expected to see roughly 11% earnings per share (EPS) growth, with growing expectations for similar EPS growth in 2025.
- “Almost always in the past, when the Fed has been cutting rates, profits were faltering. The so-called soft landing that occurred in 1995 was a notable exception, when the central bank cut its target rate even as S&P 500 earnings grew. The index rose 34% that year, which remains its single best annual performance since 1958.” (Wall Street Journal)
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